- 26 Feb
Bad Debt Protection For A Construction Business
The focus on bad debts within the construction sector, and protection against your business suffering from large companies failing has been brought into sharp focus with the recent failure of Carillion. The construction sector conglomerate went into liquidation reportedly owing it's supply chain of contractors around £2 billion. If you have been affected by the collapse there are plenty of offers of support for Carillion contractors available.
Secure Your Company Against Bad Debts
Many companies within the sector now seem to be more concerned with how to secure their company against the effects of another large customer collapsing in the future - with a fear that another large failure could be closer that we would all hope.
The simplest way of protecting your company is to ensure that you have a wide spread of customers, with no concentrations into a single customer. However, the ideal spread of customers is often not the case in practice and we deal with many companies within the sector that have either a single debtor, or a very narrow spread of debtors.
Therefore, protecting against the devastating effect of those customers failing is paramount to business survival, and the risk of those customers failing is a huge contingent risk on the business.
Bad Debt Protection
One of our funding panel, Pulse Cashflow Finance, that work with construction sector businesses were very quick to publicise the fact that none of their customers were affected by the Carillion collapse, the reason being, that all their clients receive bad debt protection (protection against customers failing and owing you money) as a standard feature with their funding packages.
Many of the funders that work with the construction sector offer similar services.The way that bad debt protection (also called non recourse) works is that the funder sets customer credit limits for you. This is the maximum value of sales that can be outstanding to a particular customer such that they are protected in the event of customer failure. The exact terms of the cover may vary between providers, but the bulk of the debt is covered providing it falls within the credit limit that was granted (there may be exclusions such as first loss clauses which work in a similar way to the excess on your car insurance).
The best way of protecting your company against a future loss is to look into the bad debt protection option before it happens - you could reap huge benefits in the future, not to mention the peace of mind that comes from knowing that you don't have to worry about customers failing.